Dwindling Appeal of Software License Sales

Who’s selling software licenses in the channel these days?

Truth be told, plenty of folks are as software remains big business, especially in the higher-end world of enterprise applications. And yet, the business model is becoming less prevalent further downstream, as solution providers come to realize the not-so-lucrative returns associated with peddling licenses for Office or other commodity software packages might not be worth it. Increasingly, the choice is to leave sourcing to the customer and focus instead on capturing the implementation and consulting services dollars that follow after the software is bought.

At least that’s the message I’m getting from a fair number of folks in the channel today. Case in point: When Microsoft announced last week that it was broadening the customer eligibility for its half-off discount special on Windows 7 Professional and the forthcoming Office 2010 Professional, I fully expected at least some outcry from partners worried about margin erosion. But it was quite the opposite.

What I heard instead was praise for the discounting move, touted as a shrewd way to spur customers into upgrading. These same partners professed not to care if the licenses were sold by them either. As far as they were concerned, customers were free to hit up retail or a DMR as long as they took their services business to the solution provider after the fact.

Services focus is just one of the forces behind the software license sales ennui. Another consideration? Licensing has become a discipline unto itself. And a headache. For example, just keeping track of Microsoft’s plethora of licensing models, fully understanding the legal and contractual ramifications, and then managing that for the customer is a full-time job. Some VARs have done just that, becoming software licensing experts as their primary focus. But for the majority of solution providers more plugged in with consulting and managed services, taking the time to be a licensing maven is a huge drain – with not so much return.

The other factor at play is the move to software-as-a-service. As more ISVs embrace a model predicated on a monthly recurring revenue for use of software based somewhere in the cloud, what does this do to our concept of traditional software licensing? Several varieties of licensing models are cropping up for SaaS and which one works best will depend greatly on the business model of the ISV, services provider or the VAR.

Today, selling licenses in and of themselves can be financially lucrative, but typically only if done in high-volume to large enterprise companies. Yet, in the case of Microsoft and other major ISVs such sales remain the domain of large-account resellers. For the average-size solution provider, focusing your time on getting a customer with 50 desktops to buy Windows 7 from you might not be worth the greater payoff that comes from guiding them to a cheaper source for licenses.

As one solution provider thrilled that Microsoft would discount its upgrade licenses told me, the less customers spend on licenses the more they have for his higher-value IT services.

Are you selling software licenses today or moving in another direction?

 

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